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Monday, November 25, 2013
Financial Planning-Helping You See the Big Picture
Monday, November 18, 2013
What's Next in the Debt Ceiling Debate?
What’s
Next in the Debt Ceiling Debate?
Implications
for the short term & the long term.
Provided by Jared Daniel of Wealth Guardian Group
In January, will the federal government
be shuttered again? At first thought,
it seems inconceivable that Congress would want to go through another
protracted fight like the one that shut things down for 16 days in October. That
could occur, however, if a new budget panel doesn’t meet its deadline.
Once more, the clock is ticking. By December 13, a group of 30 senators and
representatives have to hammer out a bipartisan budget agreement. It must a)
reconcile the markedly different House and Senate FY 2014 budget plans passed
earlier in 2013, and b) map out a longer-term plan to shrink the federal
deficit. If a) doesn’t happen, then the country will be threatened with another
federal shutdown on January 15. If b) doesn’t happen, then another round of
sequester cuts from the 2011 Budget Control Act will be initiated as of that
same date.1,2,3,4
Does this seem like déjà vu? It does among many political and economic analysts,
who fear a repeat of the supercommittee debacle of 2011, when a bicameral,
bipartisan group of 12 Capitol Hill legislators just gave up trying to find a
way to shave $2 trillion from the deficits projected for the next decade.4
This new committee is bigger, and like the supercommittee, its leaders
are far apart politically. Sen. Patty Murray (D-WA) and Rep. Paul Ryan (R-WI)
are the budget chairs of their respective chambers of Congress. The key
difference lies in the modesty of its ambition. On October 18, Murray told
Bloomberg that the committee would aim for “a budget path for this Congress in
the next year or two, or further if we can” rather than a “grand bargain”
across the next 10 years.1,3
Will they manage that? Some observers aren’t sure. Murray co-chaired
the failed supercommittee of 2011, and while Ryan was quiet during the fall
budget fight, he recently authored an op-ed piece for the Wall Street Journal reiterating his controversial ideas to slash
the deficit by reforming entitlement programs. Still, Sen. Lindsey Graham
(R-SC) told Bloomberg that “there’s a real desire to take another effort, not
at a grand bargain, but at a sequestration replacement,” and Sen. Jeff Sessions
(R-AL) commented that “we don’t want to raise expectations above reality, but I
think there’s some things we could do.”1,3,5
Leaders from of both parties maintain there will be no shutdown in
January. Senate Minority Leader Mitch McConnell (R-KY) stated that a shutdown
is “off the table” this winter. On CNN’s State
of the Union, Sen. John McCain (R-AZ) warned that the public would not
tolerate “another repetition of this disaster”; on ABC’s This Week, House Minority Leader Nancy Pelosi (D-CA) said she
sympathized with the public’s “disgust at what happened.” These comments do not
necessarily imply expedient negotiations ahead.3,6
The short-term fix didn’t fix everything. As a FY 2014 budget hasn’t yet been agreed upon, the
Treasury is still relying on stopgap funding to keep the federal government
running through January 15 and “extraordinary measures” to raise the federal
debt limit through February 7.2
The long-term outlook for America’s
credit rating didn’t really change. Fitch
put its outlook for the U.S. on “negative” and warned of a potential downgrade;
Dagong, the major Chinese credit ratings agency, actually downgraded the U.S.
from A to A-. Even so, S&P and Moody’s didn’t take action as a result of
October’s shutdown; while S&P thinks the shutdown will cut 0.6% off of Q4
GDP, it still gives the U.S. an AA+ rating (downgraded from AAA in 2011).7,8
America lacks top-notch credit ratings, but few nations have them. In
fact, only 11 countries possess the coveted AAA rating from S&P and Fitch
plus the leading Aaa rating from Moody’s. If you look at S&P’s ratings for
the globe’s ten largest economies, Germany is the only one with an AAA. China gets
an AA- with a “stable” outlook and Japan has an AA- with a “negative” outlook. While
Russia has the world’s eighth biggest economy, Moody’s, Fitch and S&P all
rate it one grade above junk bond status.7
Is Wall Street all that worried about
another shutdown? At the moment, no –
because there are several reasons why the next debt debate could be less painful.
As the goal appears to be a near-term bargain instead of a grand one, it may be
more easily realized. If the newly appointed budget panel fails, the economy can
probably weather $20 billion of 2014 sequester cuts. Also, many mid-term
elections are scheduled for 2014; do congressional incumbents really want to
damage their reputations further with another shameful stalemate?8
While confidence on Wall Street and Main Street would erode with a
repeat shutdown, the Treasury might face a slightly easier challenge in January
than it did in October. Sequester cuts would trim the already-shrinking federal
deficit further in early 2014, conserving some federal money. As a Goldman
Sachs research note just cited, Fannie Mae and Freddie Mac could also make their
dividend payments to the Treasury early in Q1, which would also help.8
Global investors can’t really back away
from America. The dollar is still the
world’s reserve currency, and China owns about $1.3 trillion of our Treasuries.
Those two facts alone should compel our legislators to work things out this
winter, hopefully before the last minute.7
This material was prepared by MarketingLibrary.Net Inc., and does
not necessarily represent the views of the presenting party, nor their
affiliates. All information is believed to be from reliable sources; however we
make no representation as to its completeness or accuracy. Please note -
investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Citations.
1 - cnn.com/2013/10/17/politics/budget-talks-whats-next
[10/17/13]
2 - csmonitor.com/USA/DC-Decoder/2013/1017/A-new-shutdown-clock-is-ticking.-Can-Washington-avoid-a-rerun-video
[10/17/13]
3 - bloomberg.com/news/2013-10-18/obama-s-goal-of-grand-budget-deal-elusive-as-talks-begin.html
[10/18/13]
4 - tinyurl.com/lchxblz [10/18/13]
5 - cnn.com/2013/10/09/politics/shutdown-ryan/
[10/9/13]
6 - tinyurl.com/lbp8cxn [10/20/13]
7 - globalpost.com/dispatch/news/regions/americas/united-states/131018/credit-rating-debt-explained
[10/20/13]
8 - cbsnews.com/8301-505123_162-57608220/5-reasons-wall-street-thinks-the-next-fiscal-feud-will-fizzle/
[10/19/13]
Tuesday, November 12, 2013
Social Security in 2014
Social
Security in 2014
Next
year’s small COLA isn’t the only adjustment related to the program.
Provided by Jared Daniel of Wealth Guardian Group
Here are six things you need to know
about Social Security for 2014. For
clarity’s sake, here is a rundown of what is changing next year, and what
isn’t.
Social Security recipients are getting a
raise – but not much of one. Next
year, the average monthly Social Security payment will increase by $19 due to a
1.5% cost-of-living adjustment, one of the smallest annual COLAs in the
program’s history. Since 1975, only seven COLAs have been less than 2%. Four of
these seven COLAs have occurred in the past five years, however. The 2013 COLA
was 1.7%.1,2
How does Social Security measure COLAs? It refers to the federal
government’s Consumer Price Index, specifically the CPI-W, which tracks how
inflation affects urban wage earners and clerical workers. Social Security
looks at the CPI-W from July to September of the present year to figure the
Social Security COLA for next year, so the 2014 COLA reflects the very tame
inflation measured in summer 2013.1,2,3
Does the CPI-W accurately measure the inflation pressures that seniors
face? Some senior advocacy groups say it doesn’t. The Senior Citizens League, a
non-profit that lobbies for elders and retired veterans, contends that Social
Security recipients have lost 34% of their purchasing power since 2000 because
the CPI-W doesn’t track rising health care expenses correctly.3
On its website, the Bureau of Labor Statistics admits that the CPI
“differs in important ways from a complete cost-of-living measure.” The CPI
measures increases or decreases in rents, transportation costs, tuition, food,
clothing, prescription drug and medical care costs, and the prices of consumer
discretionary goods and services – 200 item categories in all. Still, some prices
in the CPI rise faster than others; medical costs increased 2.4% from September
2012 to September 2013, and housing costs rose 2.3%.2,3,4
Chained CPI is not yet being used to determine
COLAs. Some analysts and legislators would
like Social Security COLAs to be based on chained CPI, a formula which assumes some
consumers are buying cheaper/alternative products and services as prices rise. Supporters
think that pegging Social Security COLAs to chained CPI could reduce the
program’s daunting shortfall by as much as 20% in the long term.5,6
The CPI-W is still the CPI of record, so to speak. That’s good for
retirees, as the Congressional Budget Office says that COLAs would be about
0.3% smaller if they were based on chained CPI. Perhaps this sounds bearable
for one year, but according to AARP, a 62-year-old who retired and claimed
Social Security in 2013 would be losing the equivalent of an entire month of
income per year by age 92 if chained CPI were used to figure benefit increases.5,6
Groups like TSCL and AARP wouldn’t mind basing the COLAs on the CPI-E,
an alternative CPI that the BLS maintains to track prices most affecting consumers
aged 62 and up. From 1982-2011, the CPI-E showed yearly inflation averaging
3.1% compared to 2.9% for the CPI-W.4,5,6
Social Security’s maximum monthly
benefit is increasing. In 2013, a
Social Security recipient who had reached full retirement age could claim
a maximum monthly benefit of $2,533. Next year, the limit will be $2,642.1
So is Social Security’s annual earnings
limit. This limit is only faced by
Social Security recipients who have yet to reach the month in which they turn
66. In 2013, retirees younger than 66 were able to earn up to $15,120 before
having $1 in retirement benefits temporarily withheld for every $2 above that
level. In 2014, the annual earnings limit rises to $15,480. Social Security
recipients who will turn 66 next year can earn up to $41,400 in 2014; if their
earnings break through that ceiling, they will have $1 of their benefits
temporarily withheld for every $3 above that level. Once you get to the month
in which you celebrate your 66th birthday, you can earn any amount of income
thereafter without a withholding penalty.1
On the job, the wage base for Social
Security taxes is rising. American
workers will pay a 6.2% payroll tax on the initial $114,000 of their incomes in
2014. The 2013 payroll tax cap was set at $113,700. About 6% of working
Americans will pay more in Social Security tax next year as a consequence of
this seemingly insignificant adjustment.1,6
This material was prepared by MarketingLibrary.Net Inc., and does
not necessarily represent the views of the presenting party, nor their
affiliates. All information is believed to be from reliable sources; however we
make no representation as to its completeness or accuracy. Please note -
investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Citations.
1 -
money.usnews.com/money/blogs/planning-to-retire/2013/10/30/how-social-security-will-change-in-2014
[10/30/13]
2 -
blogs.marketwatch.com/encore/2013/10/30/social-securitys-2014-raise-a-modest-1-5/
[10/30/13]
3 - seniorsleague.org/agenda/ [11/7/13]
4 - stats.bls.gov/cpi/cpifaq.htm#Question_4 [10/24/13]
5 - baltimoresun.com/news/opinion/bs-md-federal-chained-cpi-20131106,0,7051573,full.story
[11/7/13]
6 -
aarp.org/politics-society/advocacy/info-02-2013/the-chained-consumer-price-index-explained.html
[2/13]
Monday, November 4, 2013
RMD Precautions and Options
RMD
Precautions & Options
A
reminder about mandatory withdrawals from IRAs & other retirement plans.
Provided by Jared Daniel of Wealth Guardian Group
Just what is an RMD? After you turn 70½, the IRS requires you to withdraw
some of the money in most retirement savings accounts each year. These
withdrawals are officially called Required Minimum Distributions (RMDs).1
You must take an RMD from a traditional IRAs after you turn 70½, even
if you are still working. If you don’t, a severe financial penalty awaits – you
may have to pay a 50% tax on the amount not distributed. You are not required
to take RMDs from a Roth IRA during your lifetime.2,3
You must also begin taking annual RMDs from SEP and SIMPLE IRAs, pension
and profit-sharing plans and 401(k), 403(b) and 457 retirement plans annually
past age 70½. If you are still employed, you may be able to delay taking RMDs
from a profit-sharing plan, a pension plan, or a 401(k), 403(b) or 457 plan
until you retire. The exception: you must take RMDs from these types of
accounts after you turn 70½ if you own 5% or more of a business sponsoring such
a retirement plan.2,3
The annual RMD deadline is December 31,
right? Yes, with one notable
exception. The IRS gives you 15 months instead of 12 to take your first RMD.
Your first one must be taken in the calendar year after you turn 70½. So if you
turned 70½ in 2013, you can take your initial RMD any time before April 1, 2014.
However, if you put off your first RMD until next year you will still need to
take your second RMD by December 31, 2014.3
Calculating RMDs can be complicated. You probably have more than one retirement savings
account. You may have several. So this gets rather intricate.
Multiple
IRAs. Should you own more than
one traditional, SEP or SIMPLE IRA, annual RMDs for these accounts must be
calculated separately. The IRS does give you some leeway about how to withdraw
the money. You can withdraw 100% of your total yearly RMD amounts from just one
IRA, or you can withdraw equal or unequal portions from each of the IRAs you
own.3
401(k)s
& other qualified retirement plans. A separate RMD must be calculated for each qualified retirement plan
to which you have contributed. An exception: if you have multiple 403(b) TSAs,
you can optionally withdraw the sum of all of the RMDs for them from one 403(b)
TSA. RMDs for qualified retirement plans must be paid out separately from the
RMD(s) for your IRA(s).3
This is why you should talk to your
financial or tax advisor about your RMDs. It is really important to have your advisor review all of your
retirement accounts to make sure you fulfill your RMD obligation. If you skip
an RMD or withdraw less than what you should have, the IRS will find out and
hit you with a stiff penalty – you will have to pay 50% of the amount not
withdrawn.2
Are RMDs taxable? Yes, the withdrawn amounts are characterized as
taxable income under the Internal Revenue Code. Should you be wondering, excess
RMD amounts can’t be forwarded to apply toward next year’s RMDs.3,4
What if you don’t need the money? If you are wealthy, you may view RMDs as an annual
financial nuisance – but the withdrawal amounts may be redirected toward
opportunities. While putting the money into a savings account or a CD is the
usual route, there are other options with potentially better yields or
objectives. That RMD amount could be used to…
>> Make a charitable gift. (With enough lead time, a charitable
IRA rollover may be arranged; the IRA distribution meets the RMD requirement
and isn’t counted as taxable income).
>> Start a grandchild's education fund.
>> Fund a long term care insurance policy.
>> Leverage your estate using life insurance.
>> Diversify your portfolio through investment into stock market alternatives.1,4
There are all kinds of things you could do with the money. The
withdrawn funds could be linked to a new purpose.
So to recap, be vigilant and timely when it comes to calculating and
making your RMD. Have a tax or
financial professional help you, and have a conversation about the destiny
of that money.
This material was prepared by MarketingLibrary.Net Inc., and does
not necessarily represent the views of the presenting party, nor their
affiliates. All information is believed to be from reliable sources; however we
make no representation as to its completeness or accuracy. Please note -
investing involves risk, and past performance is no guarantee of future results.
The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Citations.
1 - jklasser.com/articles/taking-your-required-minimum-distributions/ [3/19/13]
2 - irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Required-Minimum-Distributions-%28RMDs%29
[9/4/13]
3 -
irs.gov/Retirement-Plans/RMD-Comparison-Chart-%28IRAs-vs.-Defined-Contribution-Plans%29
[4/16/13]
4 -
foxbusiness.com/personal-finance/2011/03/23/meeting-ira-withdrawal-rules/
[3/23/11]
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